With the NHL general managers meetings currently being held in Florida, lots of NHL news is trickling out. From the potential for more video reviews, mandatory cut guards for enhanced player safety, to the playoff format being completely fine according to NHL Commissioner Gary Bettman, there is almost too much news to be had.
One topic that always comes to top of mind for teams, players, and fans is just how much the salary cap is projected to change year over year. Since September, the news has fluctuated from astronomical projections to far more realistic ones with a ton of certainty carved into the statements.
If you’ve been following the news, by now you would have heard of the multiple reports that the NHL salary cap is only projected to increase by $1M for next season. News that no one was thrilled to hear.
Now if you’re a casual fan, you probably said “oh that completely makes sense” and then secretly Googled just what escrow means in terms of the NHL salary cap. It may have left you slightly confused, as it was for me the first time jumping into the topic.
Long story short, it is complicated and is far more garnered towards the business of the NHL rather than just “how much money does this player make.”
We thought it would be worthwhile to lay it out, as simple as possible, in terms of what escrow is, how it’s been used, and how it’s causing this salary cap depression we are seeing in the news.
What is escrow in the NHL?
The collective bargaining agreement (CBA) represents the contractual agreement for both the NHL (which represents the owners), and the NHLPA (which represent the players) to outline how all “employment” agreements will operate over a specific period of time.
The current CBA, finalized during the pandemic, operates until 2026. Under this CBA, the players and owners agreed to split hockey related revenues (HRR) HRR down the middle 50/50 for each NHL season that runs from July 1 – June 30—essentially hockey’s fiscal year.
The HRR influences how much the league’s salary cap can increase each season. If the league is making a lot of money, the salary cap can go up. If the league is not making much money, then it’s not going to increase.
Of course no agreement operates perfectly where it’s always going to be a perfect 50/50 split as one party may feel like they are, or in reality actually are, contributing more to the overall profit of the league.
Therefore escrow was established.
Think of escrow as a tax applied to all players’ paycheques during the year. All of that money is then held in a fund until the end of the season. If the HRR is higher than the money paid to the players, then the money held in escrow is paid back to those players at the end of the season. But, if the players’ salaries end up costing more than the league makes, the money held in escrow is used to get to an equal 50/50 split.
Essentially, if the league is doing well the players get their escrow money back. If the league is not doing well, escrow money is then used to pay back the owners since they would be bleeding money.
It’s a contingency for both sides.
If that sounds a little unfair to the players, it’s easy to think of it from your own employment currently. Would it be easier to have some money retained on your paycheque and then redistributed at the end of the year, or would you rather wait and see how your company performs and then potentially have to write them a check if things don’t go well?
The players chose the former.
Escrow 101: Escrow is a preemptive tax on player salaries held to ensure players and owners get a 50/50 split in HRR
What have the escrow trends been?
Back in 2010 when the salary cap had been established for a few seasons, the NHL was hitting the jackpot when it came to predicting the financial health of the league. The salary cap kept being voted to increase, players were getting almost their full escrow back, and owners were happy.
Then the lockout in 2012–13 happened, and the salary cap regressed from $64.3 million to $60 million. Unfortunately, for a few years after that the league continued to predict rising revenues and the salary cap continued to increase.
HRR ended up not increasing as much as it was originally predicted, and therefore the amount of escrow returned to players started to decrease.
This led to no one being happy. Players were making less, owners were footing more of the bill, and the league wasn’t growing as much as it was projected to be.
Then, just when things started to look up, the COVID-19 pandemic hit. Here’s a recurring theme: No one was happy.
Starting with the 2019–20 season, the league and teams were virtually making no money due to empty stadiums and a diminishing interest in the sport. During that time, the players were still under contract to earn money and therefore the distribution between HRR and escrow was drastic.
The owners continued to pay players, despite making little profits, and therefore all of the escrow collected during the year was not paid back to the players.
Since the pandemic season, the players have not seen a single cent return from escrow. A pain point that we are seeing impacted today.
Escrow 101: HRR is down, players are not getting their escrow payments back, no one is happy
What does it mean for the 2023–24 NHL salary cap?
Since the owners were footing the bill the last few seasons, there is still a large debt in place that needs to be repaid. Escrow is still being used to cover that.
When Gary Bettman announced earlier this season that the debt could be paid off earlier than expected, the HRR and salary cap were going to increase and therefore the players could then start earning some of their escrow back starting next year.
Unfortunately, those projections look to be wrong again and as a result the debt still needs to be paid and the salary cap will only slightly increase.
Escrow 101: The debt is not paid off yet using escrow, therefore the salary cap cannot grow
How can the escrow issue be resolved?
Well first off, the league is hoping for high revenue teams to make deeper playoff runs as those will drum up more overall money for the league, allowing for the escrow payment to level out. Should this happen, or potentially a new discussion between incoming NHLPA Executive Director Marty Walsh and Bettman lead to something a bit more fruitful, the salary cap could still increase more should those numbers look better at the end of this season.
Everyone is hoping this is the case.
Escrow 101: Pray for good playoff runs for the league’s highest earning franchises
Recapping everything noted above:
- Players and owners get a 50/50 split of HRR
- Escrow is a tax on players to ensure that the 50/50 split can happen
- If the league does well, players get that money back. If the league does not do well, escrow is used to pay the owners back.
- HRR is not doing as well, therefore players are still paying off a debt to owners using escrow – leading to the salary cap struggles
Here’s to hoping that the league, the players, and owners are all happy come the end of the season.
If you want a full numbers breakdown, highly recommend reading these articles to inform yourself more: